Reputation Worries All Around

the-one-percentReputation is often high on agendas these days.  Years ago, it was not usually number one but among the top three to five items that kept boards and CEOs up at night. This week someone sent me an issue of Operational Risk and Regulation and I quickly breezed through the table of contents online when I noticed that they had an article describing a risk survey among operational risk managers. This is not usually the typical stakeholder group I get asked about so I took a look at the various types of risks that were keeping them up at night or at least, stressed out during the day. Reputational damage was at the top of their top 10 list for 2013.  When I turned to the fuller description on reputational damage, the first sentence was quite boldly stated. "A good reputation has never been easier to lose -- though this may not be a problem for much of the financial sector, as it doesn't have one." I understand where the author is going with this statement but the financial sector does have a reputation, just not a particularly good one. A company or sector can have a good or bad reputation and in some cases, somewhere in between. Most every sector, person and organization has a reputation. And just as a company can lose reputation over night or in seconds, so can it begin the process of redeeming itself by beginning the process of being straightforward, transparent and communicative. The financial sector, like many others, has certainly been battered but it does not mean that it is not crawling back and trying to restore its credibility. If anything, the financial crisis of the past few years has taught the financial sector to be more humble and that might just be a good place to start.

 

KEY RISKS FOR OPERATIONAL RISK DEPARTMENTS

IN 2013

 

Reputational damage

83.2%

Failure to enforce internal controls

79.8

IT sabotage/cybercrime/cyberattacks

77.4

Complex fraud and abuse of customer data

73.4

Business continuity

66.0

Sanctions and AML compliance

57.2

Culture, incentives and compensation

46.8

Operational risks associated with emerging market operations

 

42.3

Political intervention

35.0

Epidemic/pandemic disease

16.2

Ordnance Survey, in association with Operational Risk & Regulation

 

Timing is Everything in Reputation

Timing is everything when it comes to reputation. There are several articles today about how London's reputation for financial integrity has been damaged by recent events in their banking system. What's more interesting to me besides the three banks whose reputations have been undercut for rigged interest rates and money laundering is the timing of these crises. All three bank debacles occurred within weeks of each other which is a collective reputation-killer for the city of London and the sector. I always say that you can err once, misstep again but the third time and you're out! I think that is a baseball cliche of sorts. But it is true that three is the magic number when it comes to reputation. Companies and leaders fall, often trip a second time as they institute change but on the third try, you definitely lose investor and customer patience.  After a third attempt or three sequential mishaps, your reputation gets a scarlet R. I think that is what is happening to the U.K. banking system. Not that this has not happened to us in the U.S. We have had our fair share of 1-2-3 and 4+ reputational fouls.  In fact, enough for a lifetime. The saving grace for the U.K.'s financial sector is that the Olympics are stealing the show and its summer holiday time. People are also very worried about the economies around the world and leadership changes in the U.S. and China. As they say, timing is everything and the U.K. banks picked a good time to stumble (if they had a choice, very unlikely). There was a line in one article about this reputational meltdown for the City of London which made me read it twice: ..."the U.K. government had launched a public inquiry into banking culture -- even bringing in a bishop to offer a moral perspective."  I am curious what the Bishop shared.

There are plenty of companies with excellent ethical programs and cultures that could serve as best practices for these wronged companies. I'd turn to them too. We've got to get these ethical violations straightened out to restore trust once again in our financial centers. Let's do more than keep our fingers crossed. And let's make sure we listen to the stories from the other side in case we're not hearing the full story. That's been known to happen!

Reputation, Not Image Management

A new reputation study by Pam Cohen, a behavioral economist for Dix & Eaton, was recently released. It appears that they are looking at various industries and chose the financial sectoras the first one. For this analysis, she drew on over two dozen data sources, government statistical information and industry rankings and surveys. Of the nine drivers of reputation, the top five that impacted corporate reputation in this industry were shareholder investment (ROI), CSR, transparency, sustainability and image. Cohen remarked: “While it is no surprise that ROI shows up among the top drivers of financial institution reputation, more telling is that corporate social responsibility is the number-two driver, and sustainability number four. This, of course, highlights our culture’s return to grass roots despite – or perhaps because of – the downturn in the economy. Values are viewed as being critical to organizational success and acceptance.” Cohen also mentions her surprise that “image” rose back into the top ranks of reputation drivers, a spot it has not held since a decade ago. To me, image is a peculiar term in many ways. When I first started in the reputation business, people used to respond to my answer about what I did as “oh, you do image or impression management.” That used to make me irritable because reputation is so much deeper than image and they were missing the point obviously. I think of image as fleeting, temporary and shallow whereas reputation mobilizes people to support a good company by investing in them, recommending them, believing in them and listening to them. But for this study, I am confident that image was a catch-all for reputation, trust and admiration, all of which Cohen references. I also found it interesting that “transparency” was third in the list of drivers of reputational impact which speaks to the importance of telling it like it is, not saying “no comment,” and being timely and relevant in company communications. Fascinating to me was that “ethics” or “good ethical conduct” did not appear on the list since ethical behavior has been so important in valuing companies of late. Perhaps ethical behavior falls into some of the other drivers and that information was not mentioned in the release. The second industry they analyzed is retail. Using somewhat different criteria for reputational impact, Cohen found that the leading ones here were overall satisfaction, quality of goods and services, price/value, trust and problem resolution. They also looked at sustainability efforts, convenience and variety. Cohen used social media in this analysis which makes sense considering that social media can go a long way in resolving issues and refining products. When it comes to retail, the quality of products and services nearly always goes first. Makes sense.

I met Pam Cohen years ago when she was at the Ernst & Young Center for Innovation. Some of the research that I did back then on CEO reputation was fed into her analysis which was featured in Forbes. Glad to see that she is still working the reputation angle because her research is top-notch.

Reputation Redemption

It seems like everyone is coming out with their lists for “best and worst of” for 2008. There sure are plenty “worst of” cases.  Reputations have taken major hits this year.  I was contemplating who took the biggest beating and why. I would have to say that the financial sector wins the award for worst reputation damage of the year. There is no end to the thoughtlessness that has caused irreparable harm and anguish to people the world over. The economic meltdown caused by subprime losses, greed, fraud, lack of oversight and sheer idiocy makes one speechless.  Although I cannot predict when our financial institutions will recover, I can say that it will take years to rebuild the massive amounts of trust that they have squandered.  The Bernie Madoff scandal ends the year on a very dour note. My family knows people who have had their life savings wiped out overnight. One woman we know was getting 18% on her accounts every year. Many people are now putting their homes on the market and praying for the best although the worst has arrived at their doorstep.

I have been quoted a fair amount the past few months on CEO apologies. In fact, tomorrow I was intereviewed on NPR on CEO apologies in 2008. The absence of these regrets has caused the media to question why and what it takes to simply say I am sorry.  Most people believe that CEOs are to blame when companies go awry or entire sectors detonate. As I have said before, apologizing can be seen as a sign of strength, not weaknesses.  If CEOs carefully adhere to the values they ask everyone to follow, they can easily see that apologies are often the “right thing” to do.  Here are some guidelines for all those reputation-busters thinking that an apology might be in order:

1.       Move quickly

2.       Accept accountability

3.       Refer to what was wronged so it is clear you know what was done

4.       Apologize for outcome/express regret

5.       Share the pain

6.       Be transparent

7.       Be sincere

8.       State plan for making sure the event never happens again and what that is

9.       Spare the finger pointing

10.   Issue regular progress reports

Eating humble pie never hurt anyone.